A strong first half of 2017 for passenger demand…Industry-wide revenue passenger kilometres (RPKs)
grew by 7.8% year-on-year in June, and by a similar
rate (7.9%) in the first half of the year (H1 2017) as a
whole. Nearly three-quarters of the year-on-year
increase in global RPKs in H1 2017 was accounted for
by airlines based in Asia Pacific and Europe.

…in part reflecting a stronger economic backdrop

The strong start to the year for passenger demand
has been set against a markedly brighter economic
backdrop relative to the first half of 2016, as well as a
period of demand stimulation from lower airfares.

The robust finish to 2016 for seasonally-adjusted (SA)
traffic has also provided a favorable starting point for
RPK growth rates in 2017. In fact, even if SA traffic had
not risen at all in H1 2017 (ie, had it remained steady
at its December 2016 level), year-on-year RPK growth
in the first half of the year as a whole would still have
been in the region of 6%.

Further signs of an easing in the SA trend…

That said, the latest data provide further evidence that
the upward trend in SA passenger traffic has slowed
from that seen in the final months of 2016. Industry-wide RPKs were growing at an annualized
rate of more than 12% coming into 2017, but this has
slowed to around 7% since February.

It is worth putting this slowing trend in perspective;
despite the slowing, the annualized pace of growth
remains ahead of the average growth rate of both the
past five and ten years (6.4% and 5.5%, respectively).

However, as we have noted before, the slowing SA
trend is consistent with a softening in the exceptionally
supportive conditions for passenger demand that were
in place in H2 2016. This relates to two key factors, the
first of which is developments in business confidence;
having risen for five consecutive months between
September 2016 and January 2017, the global
services purchasing managers’ index – which is
strongly correlated with industry-wide passenger
growth – has now tracked sideways over the first six
months of 2017. The second factor
relates to less stimulus to demand from lower airfares;
now that airline yields look to have bottomed out, the
degree of demand stimulation is currently around half
that seen in H2 2016, and is likely to fade further
during H2 2017.